Finance Ministry unveils plan to help hi-tech sector

Plan offers tax breaks on capital gains to encourage firm growth.

Finance Minister Yuval Steinitz on Tuesday unveiled a multiyear plan to support
Israel’s hi-tech industry and encourage the growth of large
companies

“During the past 10 years, we have not seen the emergence of
any giant companies,” he said at the High-Tech Industry Association conference
in Jerusalem. “We are interested in seeing more companies like Checkpoint, Teva
and Amdocs. We want to ensure the necessary conditions for an Israeli Nokia.”
The Finance Ministry, in cooperation with the Industry, Trade and Labor
Ministry, the Chief Scientist’s Office and industry, wants to expand the
country’s hi-tech sector, especially biotechnology and technology for financial
services, Steinitz said

“Our aim is to preserve our leadership in
technology, to increase and widen our advantages, and to spread them to
additional areas,” he said

The Finance Ministry reported a decline in the
volume of venture-capital investment in advanced industries by local and foreign
institutional investors, while at the same time emerging-market economies were
increasing investment into R&D

In addition, there are fewer science
and engineering graduates in the country and an increase in the number of
Israeli students going abroad, especially for postgraduate studies. The plan
gives Israeli academics, scientists and entrepreneurs living abroad tax breaks
to lure them back

“There is a risk of a significant threat to the growth
rate of advanced industries in Israel, while at the same time competition in the
sector from other countries is increasing,” Finance Ministry director-general
Haim Shani said

The plan includes tax benefits to encourage the growth of
medium- and large-sized Israeli companies through acquisitions of smaller
companies

Companies that buy smaller firms or merge will enjoy tax
benefits for five years

The plan offers tax breaks on capital gains to
encourage local hi-tech companies to grow into multinationals rather than be
sold early, and so that their shareholders will hold onto their
shares

“The problem is that many companies are forced to sell at an early
stage, leading to a loss of added value to the Israeli economy,” Steinitz
said

“We are not planning to fight early exits. But we will introduce
measures in the form of benefits that will enable the growth of these companies
for a longer period of time.” The plan offers local institutional investors a
safety net through state guarantees in the event of losses. Currently, much of
the investment and VC money in Israeli hi-tech companies comes from
abroad

To help start-ups survive, the plan gives tax incentives for
investing in fledgling R&D companies. Last year, Israeli hi-tech firms
raised $1.12 billion in venture capital, down 46 percent from 2008, according to
Israel Venture Capital Research Center

Shani, a former CEO of Nice
Systems, said Israeli industry had not yet tapped into the potential of
technology for financial services

“The global financial industry is one
of the largest consumers of technology in the world, a market that
generates
more than $200 billion,” he said. “Israel, which is considered a global
leader
in information, technology and innovation, is not part of this market.
In an
effort to boost R&D activity for the financial market, the
government will
offer incentives to international financial-services companies that want
to
establish R&D centers in Israel.” The plan also encourages haredim
and Arabs
to work in hi-tech companies by subsidizing their salaries

“There are
good examples of haredi work participation in Modi’in and other places,
but the
haredim and Arab populations still are underrepresented in the
technology
industry,” Steinitz said

“We want to expand work participation of these
populations to the periphery – that is, to the Negev, Galilee and
Jerusalem.”
The plan helps science and technology education through training
teachers. It
encourages retirees of technology companies to become teachers, and
employees in
technology companies to teach at schools for four or five hours a
week

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